Keelty et al. v. Bernique et al.

Keelty et al. v. Bernique et al.; General Accident Assurance Company et al., Third Parties Armitage et al. v. Bernique; General Accident Assurance Company, Third Party [Indexed as: Keelty v. Bernique]

57 O.R. (3d) 803

[2002] O.J. No. 83

Docket No. C33708

Court of Appeal for Ontario

Morden, Laskin and Rosenberg JJ.A.

January 17, 2002

Insurance -- Automobile insurance -- Uninsured motorist endorsement -- Umbrella policy issued by Insurer A contained Option W (providing underinsured/uninsured motorist coverage to maximum of $1 million) -- Option W not part of "automobile liability policy" -- Option W did not constitute type of insurance coverage listed under s. 7 of O.E.F. 44 endorsement of Insurer B's automobile insurance policy -- Insurer B required to respond to its insured in priority to Insurer A -- Insurer A's policy was excess to coverage under O.E.F. 44 endorsement.

K was a passenger in a vehicle driven by M, that was involved in a collision caused by the negligence of another driver, B, who was uninsured. M died in the accident, and K was badly injured. The M vehicle was insured by State Farm Auto through a standard automobile insurance policy, which included uninsured motorist coverage to a limit of $200,000 and O.E.F. 44 (Family Protection) endorsement coverage to a limit of $300,000. State Farm Fire had issued a Personal Liability Umbrella Policy to M. This policy included Option W., which provided underinsured/ uninsured motorist coverage to a maximum of $1 million. K was insured under a standard automobile insurance policy issued by R Co., which contained an O.E.F. 44 endorsement with a limit of $1 million. Actions by K and his family and by M's estate were settled. A dispute arose as to the order in which State Farm Fire and R Co. had to respond to pay out the settlement to K and his family. The motions judge held that State Farm Fire's Personal Liability Umbrella Policy had to respond in priority to K's own automobile policy issued by R Co. State Farm Fire appealed.

Held, the appeal should be allowed.

There was no dispute that K was an insured under both of the policies. The order in which the two insurers had to respond was to be determined by interpretation of the R Co. O.E.F. 44 endorsement. Section 7 has two purposes. The first part, "The amount payable under this endorsement to an eligible claimant is excess to the amount received by the eligible claimant from any source, other than money payable on death under a policy of insurance", is to prevent double recovery, hence the use of the words "received from any source". It does not govern priorities as such between insurance policies, which is determined before an amount has been "received". Priorities as between the O.E.F. 44 coverage and coverage under other insurance policies is dealt with in the second part, "and is excess to amounts that were available to the claimant from . . .". There then follows a list of types of insurance coverage. The coverage provided by Option W did not come within any of the listed categories. Only two were suggested b y R Co.: (e) the uninsured automobile coverage of a motor vehicle liability policy, and (i) the family protection coverage of another motor vehicle liability policy. Option W provided uninsured/underinsured coverage but was not part of a motor vehicle liability policy. Motor vehicle insurance is highly regulated in Ontario under Part VI of the Insurance Act, R.S.O. 1990, c. I.8. Under s. 227 of the Act, the Commissioner must approve the form of policy, endorsement or renewal of automobile insurance. The umbrella policy and Option W were not part of that scheme and did not comply with the requirements of a motor vehicle liability policy set out in ss. 239 and following under the heading "Motor Vehicle Liability Policies".

Section 18 of the O.E.F. 44 endorsement had no application to this case because the umbrella policy and Option W were not family protection coverage "on the automobile" in which K was an occupant. The umbrella policy purchased by M was a personal liability umbrella policy. It did not attach to any named automobile.

K had to first look to his own O.E.F. 44 coverage after receiving his prorated share of the $200,000 State Farm Auto uninsured motorist coverage. The State Farm Fire umbrella policy was by its terms excess to this other coverage.

APPEAL from a judgment determining the priority of response of two insurers.

Cases referred to Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. 1-1176; Joe v. Guardian Insurance Co. of Canada, [1999] I.L.R. 1-3734 (Ont. C.A.), affg (1998), [1998] I.L.R. 1-3560 (Ont. Gen. Div.); Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 1994 653 (ON CA), 18 O.R. (3d) 663, 115 D.L.R. (4th) 37, [1994] I.L.R. 1-3067, 56 C.P.R. (3d) 46, 4 E.T.R. (2d) 69, 72 O.A.C. 66, 22 C.C.L.I. (2d) 161 (C.A.), revg (1990), 1990 8054 (ON SC), 68 D.L.R. (4th) 586, [1990] I.L.R. 1-2658 (Ont. H.C.J.) (sub nom. Plaza Fiberglass Manufacturing Ltd. v. New Hampshire Insurance Co.); Stoumen v. Public Service Mutual Insurance Co., 834 F.Supp 140 (E.D. Pa. 1993)

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 227, 239, 251

Robin B. Cumine, Q.C., for appellant. Sylvia Corthorn, for respondent.

The judgment of the court was delivered by

[1] ROSENBERG J.A.: -- In August 1992, there was a serious motor vehicle accident leading to the death of one person and serious injury to his passenger. The driver of the other vehicle, whose negligence caused the accident, was uninsured. There has been a settlement of the actions brought by the driver's family and by the passenger and his family. What remains is a dispute as to the order in which two insurance policies must respond to pay out the settlement to the passenger and his family. The appellant and respondent in this appeal are two insurance companies, State Farm Fire and Casualty Company and Royal Insurance Company of Canada respectively. Mercier J. held that State Farm Fire's Personal Liability Umbrella Policy issued to the driver and his wife must respond in priority to the passenger's own automobile policy issued by Royal Insurance. For the following reasons, I would allow the appeal.

The Facts

The collision

[2] The dispute in this case concerns the order in which various insurance policies must respond to pay the settlement to David Keelty and his family arising out of a motor vehicle collision in August 1992 in Ontario. Keelty was a passenger in a vehicle driven by Scott McDonald. Denis Bernique, the driver of the other vehicle involved in the collision, negligently caused the collision when he drove his vehicle into the wrong lane. Bernique was uninsured. There was no negligence on the part of McDonald. McDonald died in the accident. Keelty was very badly injured.

The actions

[3] McDonald's wife, Brenda Armitage, and other family members commenced an action to recover damages for the losses suffered as a result of McDonald's death ("the Armitage action"). David Keelty and his family brought an action to recover damages for their losses. In addition to Bernique, a number of insurance companies were named as defendants in the Keelty action.

[4] The claims in the Keelty and Armitage actions were resolved with the defendants in accordance with Minutes of Settlement. The Keelty's received approximately $720,000 for damages and interest and $82,000 for costs. The Armitage claimants received approximately $380,000 for damages and interest and $60,000 for costs.

The insurers

State Farm Mutual Automobile Insurance Company ("State Farm Auto")

[5] State Farm Auto insured the McDonald/Armitage vehicle through a Standard Ontario Automobile Policy of Insurance. That policy included:

(i) uninsured motorist coverage to a limit of $200,000

(ii) O.E.F. 44 (Family Protection) endorsement coverage to a limit of $300,000

State Farm Fire and Casualty Insurance Company ("State Farm Fire")

[6] State Farm Fire had issued a Personal Liability Umbrella Policy to McDonald and Armitage. This policy includes Option W, which provides underinsured/uninsured motorist coverage to a maximum of $1 million. Since this is one of the policies involved in this dispute, I will set out its terms in more detail below.

Royal Insurance Company of Canada

[7] Royal Insurance issued a standard policy of motor vehicle liability insurance to Keelty. As with the State Farm Auto policy issued to McDonald/Armitage, the Royal Insurance policy contained an O.E.F. 44 (Family Protection) endorsement. It has a limit of $1 million. Since this is the other policy involved in the dispute, I will also set out its terms in more detail below.

The response of the insurers

[8] The insurers have funded the settlement. This dispute is almost entirely about the priorities in which the various insurers must respond. I say "almost entirely" because, for reasons that have not been fully explained, if the appellant State Farm Fire had succeeded on the motion, the Armitage and Keelty plaintiffs would have been entitled to share in a further $50,000.

[9] There is no dispute between the parties that State Farm Auto is required to pay to the Keelty and Armitage plaintiffs their rateable portions of the $200,000 from the McDonald/ Armitage uninsured motorist coverage. State Farm Auto is also required to pay a further $100,000 to the Armitage plaintiffs under the McDonald/Armitage Family Protection Endorsement.

[10] State Farm Fire takes the position that after receipt of their portion of the State Farm Auto uninsured motorist coverage, the Keelty plaintiffs must first look to the coverage from the Family Protection Endorsement in their own motor vehicle liability insurance policy issued by Royal Insurance.

[11] Royal Insurance takes the position that after receipt of their portion of the State Farm Auto uninsured motorist coverage, the Keelty plaintiffs must first look to the McDonald/Armitage State Farm Fire umbrella policy. Only after those limits are exhausted do the Keelty plaintiffs look to their own Royal Insurance Family Protection Endorsement.

The policies

The Royal Insurance Family Protection Endorsement

[12] The relevant parts of the Royal Insurance O.E.F. 44 -- Family Protection Endorsement are the following:

1.4 "family protection coverage" means the insurance provided by this endorsement and any similar indemnity provided under any other contract of insurance.

1.6 "insured person" means

(a) the named insured and his or her spouse and any dependent relative of either, while

(ii) an occupant of any other automobile . . .

7. The amount payable under this endorsement to an eligible claimant is excess to an amount received by the eligible claimant from any source, other than money payable on death under a policy of insurance, and is excess to amounts that were available to the eligible claimant from

(e) the uninsured automobile coverage of a motor vehicle liability policy;

(i) the family protection coverage of another motor vehicle liability policy.

18. Multiple Coverages -- The following rules apply where an eligible claimant is entitled to payment under family protection coverage under more than one policy:

(a)

(i) If he or she is an occupant of an automobile, such insurance on the automobile in which the eligible claimant is an occupant in [sic] first loss insurance and any other such insurance is excess;

(c) the applicable first loss insurance shall be exhausted before recourse is made to excess insurances.

The State Farm Fire Umbrella Policy

[13] The relevant parts of the State Farm Fire Personal Liability Umbrella Policy are primarily found in Option W:

We will pay, up to the Option W limit, the amount which you and your passengers are legally entitled to recover as damages from the owner or driver of an underinsured automobile.

These conditions apply:

1. You must maintain underlying limits of at least $100,000 per person and $300,000 per loss for underinsured and uninsured losses.

2. The retained limit for Option W is the total amount received for the loss from or on behalf of the liable party plus the amount received from your underlying coverage, but not less than the amount of your required underlying limit.

3. We will pay only the amount in excess of the retained limit up to the Option W limit.

4. Option W will apply only when damages are paid by or on behalf of the liable party or there is payment by your underlying coverage.

5. Option W will apply in accordance with the terms and conditions of your underlying Uninsured and Underinsured Motorist Coverage.

[14] In the umbrella policy itself "retained limit" is defined in part as:

a. the total limits of liability of any underlying insurance you may collect. The limits listed in the Declarations are the minimum you must maintain;

[15] In addition, under the heading "Other Conditions" in the umbrella policy is the following:

4. Other Insurance. This policy is excess over any other valid and collectible insurance except:

a. Insurance written specifically as excess coverage over the retained limit for Coverage L; or

b. Insurance written specifically as excess coverage over the limits of this policy.

[16] On the Declarations page the minimum underlying limits for "automobile liability" are $300,000. McDonald/Armitage paid a premium of $26 for the Option W coverage. According to the special case, the wording of this option originated in the United States. The requirements respecting underlying limits derive from legislation in various states in the United States that set minimum uninsured coverage limits on the basis of both a "per person" and a "per loss" basis. According to the special case,

Under the [Personal Liability Umbrella Policy] the umbrella insurer is in a position to assert that an insured is self- insured with respect to any portion of the required underlying coverage which the insured failed to maintain.

The Reasons of the Motions Judge

[17] The motions judge noted that Keelty was an insured person under both his Royal O.E.F. 44 Endorsement and the McDonald/Armitage State Farm Umbrella Policy, Option W. He held that Option W was "clearly intended to cover a passenger in McDonald's vehicle and was not conditional on that passenger not being covered elsewhere". He therefore held that State Farm Fire must respond before Royal Insurance.

Analysis

[18] There is no dispute that Keelty is an insured under both of the policies. He is an insured under his Royal O.E.F. 44 endorsement under clause 1.6(a)(ii) being the named insured while "an occupant of any other automobile". The other automobile is, of course, the McDonald/Armitage vehicle being driven by Mr. McDonald. He is an insured under the State Farm Fire McDonald/Armitage Option W because the insurer agreed to pay "the amount which you and your passengers" are legally entitled to recover as damages.

[19] There is also no dispute that the O.E.F. 44 endorsement is a form of "excess insurance". It is explicitly stated to be so in clauses 7 and 18 in the Royal Insurance Policy set out above. The State Farm Fire umbrella policy and the Option W coverage is also a form of excess insurance. Again it is expressly stated to be so in s. 4 of that policy. This court defined excess insurance in Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 1994 653 (ON CA), 18 O.R. (3d) 663, 72 O.A.C. 66 (C.A.), at p. 674 O.R., p. 74 O.A.C.:

Excess coverage is, by definition, coverage whereby liability attaches only after a predetermined amount of primary coverage has been exhausted. This reduced risk of loss is obviously reflected in the cost of the policy.

[20] Option W is also part of an umbrella policy, the characteristics of which were described by this court in Joe v. Guardian Insurance Co. of Canada, [1999] I.L.R. 1-3734 (Ont. C.A.):

The Guardian policy was never intended to be anything other than an umbrella policy providing for excess coverage. . . . It would be contrary to the language of the umbrella policy if it had to share pro rata with the standard coverage.

[21] The order in which these two policies must respond is, in my view, to be determined by interpretation of the Royal O.E.F. 44 endorsement. For convenience, I will repeat the relevant parts of this endorsement starting with s. 7:

7. The amount payable under this endorsement to an eligible claimant is excess to an amount received by the eligible claimant from any source, other than money payable on death under a policy of insurance, and is excess to amounts that were available to the eligible claimant from

(e) the uninsured automobile coverage of a motor vehicle liability policy;

(i) the family protection coverage of another motor vehicle liability policy.

[22] It seems to me that s. 7 has two purposes. The first part, "The amount payable under this endorsement to an eligible claimant is excess to an amount received by the eligible claimant from any source, other than money payable on death under a policy of insurance", is to prevent double recovery, hence the use of the words "received from any source". It does not govern priorities as such between insurance policies, which is determined before an amount has been "received". [See Note 1 at end of document] Priorities as between the O.E.F. 44 coverage and coverage under other insurance policies is dealt with in the second part, "and is excess to amounts that were available to the eligible claimant from". There then follows a list of types of insurance coverage. The complete list is as follows:

(a) the insurers of the inadequately insured motorist, and from bonds, cash deposits or other financial guarantees given [on] behalf of the inadequately insured motorist;

(b) the insurers of a person jointly liable with the inadequately insured motorist for the damages sustained by an insured person;

(c) the Régie de l'assurance automobile du Québec;

(d) an unsatisfied judgment fund or similar plan, or which would have been payable by such fund or plan had this endorsement not been in effect;

(e) the uninsured automobile coverage of a motor vehicle liability policy;

(f) an automobile accident benefits plan applicable in the jurisdiction in which the accident occurred;

(g) a law or policy of insurance providing disability benefits or loss of income benefits or medical expense or rehabilitation benefits;

(h) any applicable Workers' Compensation Act or similar law of the jurisdiction in which the accident occurred;

(i) the family protection coverage of another motor vehicle liability policy.

[23] For Royal to succeed in its argument based on s. 7, it must show that the Option W fits within one of these categories. Only two were suggested:

(e) the uninsured automobile coverage of a motor vehicle liability policy;

[and]

(i) the family protection coverage of another motor vehicle liability policy.

(Emphasis added)

[24] In my view, the coverage provided by Option W does not come within either. Option W provides uninsured/underinsured coverage but it is not part of a motor vehicle liability policy. Motor vehicle insurance is highly regulated in this province under Part VI of the Insurance Act, R.S.O. 1990, c. I.8. Under s. 227, the Commissioner must approve the form of policy, endorsement or renewal of automobile insurance. The umbrella policy and Option W are not part of that scheme. Sections 239 and following in Part VI under the heading "Motor Vehicle Liability Policies" set out the requirements of a motor vehicle liability policy. The State Farm Fire umbrella policy and Option W do not comply with those requirements. For example, it does not provide liability coverage to the limits required by s. 251 or coverage with respect to the benefits set out in the No Fault Benefits Schedule.

[25] In the alternative, Royal argues that the provisions of s. 18 of the O.E.F. 44 endorsement apply and Option W provides first loss insurance within the meaning of that provision. For convenience I will repeat the applicable parts of s. 18:

18. Multiple Coverages -- The following rules apply where an eligible claimant is entitled to payment under family protection coverage under more than one policy:

(a)

(i) If he or she is an occupant of an automobile, such insurance on the automobile in which the eligible claimant is an occupant in [sic] first loss insurance and any other such insurance is excess;

(c) the applicable first loss insurance shall be exhausted before recourse is made to excess insurances.

(Emphasis added)

[26] In my view, s. 18 has no application to this case because the State Farm Fire umbrella policy and Option W is not family protection coverage "on the automobile" in which Keelty was an occupant. The umbrella policy purchased by McDonald/ Armitage was a personal liability umbrella policy. It did not attach to any named automobile. By contrast, the Keelty Royal Insurance policy to which the O.E.F. 44 endorsement was attached described the insured automobile as a "1988 Ford Escort LX 2 door".

[27] At the least, s. 18 is ambiguous and the court should therefore seek the more reasonable interpretation that will promote the intentions of the parties. See Consolidated- Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888 at p. 901, 112 D.L.R. (3d) 49. It seems to me that the intent of s. 18 is to govern priorities among O.E.F. 44 endorsements in Ontario policies or similar endorsements in automobile policies from other jurisdictions. Unlike the State Farm Fire umbrella policy, it is part of the automobile liability policy regulatory scheme. Although it contains uninsured motorist coverage, the purpose of the umbrella policy is to "provide individuals with affordable protection against excess judgments of third parties rather than provide individuals with automobile insurance": Stoumen v. Public Service Mutual Insurance Co., 834 F.Supp. 140 (E.D. Pa. 1993) at p. 143. This accounts for the relatively modest premium for the umbrella policy.

[28] Finally, para. 18(c) has no application since the State Farm Fire umbrella policy is not "first loss insurance" but excess insurance. See s. 4 of the Umbrella Policy.

[29] To conclude, Keelty must first look to his own O.E.F. 44 coverage after receiving his prorated share of the McDonald/ Armitage $200,000 State Farm Auto uninsured motorist coverage. The State Farm Fire umbrella policy is by its terms excess to this other coverage.

Disposition

[30] The special case sought the opinion of the court as to which of two scenarios reflects the priority of coverage. I would allow the appeal, set aside the judgment of the motions judge and grant the following relief provided for in the special case:

An order that the plaintiffs in action number 84802/94, after receiving their rateable portion of the Uninsured Automobile Coverage pursuant to the Standard Ontario Automobile Policy of insurance issued by State Farm Mutual Automobile Insurance Company to Armitage/McDonald must, for the payment of the balance of their claims, look to the O.E.F. 44 Family Protection Endorsement included in the Standard Ontario Automobile Policy issued by the Royal Insurance Company of Canada to David Keelty, in accordance with its terms, and next to the Personal Liability Umbrella Policy issued by State Farm Fire and Casualty Insurance Company to Armitage/ McDonald, in accordance with its terms.

[31] The appellant State Farm Fire is entitled to its costs of the motion and the appeal.

Appeal allowed.

Notes

Note 1: Thus, the special case provided that the settlement was "without prejudice to the respective rights of the insurers on their policies and subject to a determination by this court on the issue of priority of coverage and interpretation of the policies".